Correlation Between Agro Tech and NMDC Steel

Can any of the company-specific risk be diversified away by investing in both Agro Tech and NMDC Steel at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Agro Tech and NMDC Steel into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Agro Tech Foods and NMDC Steel Limited, you can compare the effects of market volatilities on Agro Tech and NMDC Steel and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Agro Tech with a short position of NMDC Steel. Check out your portfolio center. Please also check ongoing floating volatility patterns of Agro Tech and NMDC Steel.

Diversification Opportunities for Agro Tech and NMDC Steel

-0.32

Correlation Coefficient

Agro Tech  NMDC Steel

Very good diversification

The 3 months correlation between Agro and NMDC is -0.32. Overlapping area represents the amount of risk that can be diversified away by holding Agro Tech Foods and NMDC Steel Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NMDC Steel Limited and Agro Tech is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Agro Tech Foods are associated (or correlated) with NMDC Steel. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NMDC Steel Limited has no effect on the direction of Agro Tech i.e., Agro Tech and NMDC Steel go up and down completely randomly.

Pair Corralation between Agro Tech and NMDC Steel

Assuming the 90 days trading horizon Agro Tech Foods is expected to generate 1.33 times more return on investment than NMDC Steel. However, Agro Tech is 1.33 times more volatile than NMDC Steel Limited. It trades about 0.11 of its potential returns per unit of risk. NMDC Steel Limited is currently generating about 0.1 per unit of risk. If you would invest  85,280  in Agro Tech Foods on September 26, 2024 and sell it today you would earn a total of  4,665  from holding Agro Tech Foods or generate 5.47% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	100.0%
Values	Daily Returns

Agro Tech Foods  vs.  NMDC Steel Limited

Agro Tech Foods

Risk-Adjusted Performance

4 of 100

Modest

Compared to the overall equity markets, risk-adjusted returns on investments in Agro Tech Foods are ranked lower than 4 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively unsteady basic indicators, Agro Tech may actually be approaching a critical reversion point that can send shares even higher in January 2025.

NMDC Steel Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days NMDC Steel Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Even with latest uncertain performance, the Stock's forward indicators remain invariable and the latest agitation on Wall Street may also be a sign of long-running gains for the enterprise retail investors.

Pair Trading with Agro Tech and NMDC Steel

The main advantage of trading using opposite Agro Tech and NMDC Steel positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Agro Tech position performs unexpectedly, NMDC Steel can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in NMDC Steel will offset losses from the drop in NMDC Steel's long position.

The idea behind Agro Tech Foods and NMDC Steel Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Options Analysis module to analyze and evaluate options and option chains as a potential hedge for your portfolios.